Morgan Stanley (MS) plans to hire as many as 400 traders and salespeople. The hiring spree aims at ramping up profit in the company’s emerging markets, foreign exchange, equity derivatives and prime brokerage businesses and thereby taking the company out of three straight quarters of losses.

This move comes after Morgan Stanley reported a second-quarter loss, while its major competitors Goldman Sachs Group Inc. (GS) and JPMorgan Chase & Co. (JPM) reported strong earnings. After last year’s meltdown of the banking sector, Morgan Stanley steered away from risky investments that led to the demise of some of its competitors. When trading opportunities picked up in the second quarter of 2009, its competitors took advantage while Morgan Stanley lagged behind as a result of maintaining a more conservative stance to survive the financial crisis.

Morgan Stanley reported a loss of $1.26 billion, or $1.10 per share after paying preferred dividends for the second quarter, compared to $1.06 billion or $1.02 per share, in the prior-year quarter. The loss was mainly attributable to special charges incurred to cover losses in real estate investments and costs of repaying the bailout money to the government.

Though Morgan Stanley’s investment banking revenues were strong in the reported quarter, its conservative approach to trading hindered its ability to reap higher profits to offset the special charges. Furthermore, the company’s capital ratios were among the sturdiest in the industry indicating that it had pulled higher cash in reserves rather than betting on riskier assets.

In June 2009, Morgan Stanley was one of 10 major banks that was approved to repay its government loan. Morgan Stanley had received $10 billion as part of the government’s $700 billion program.

About half of the intended recruitment has already taken place across sales and trading. The company is looking to add more positions in its foreign exchange, emerging markets and equity derivatives businesses.

Morgan Stanley has already hired people from JPMorgan, Deutsche Bank AG (DB), Citigroup Inc. (C), Credit Suisse Group (CS), UBS AG (UBS) and Merrill Lynch, now part of Bank of America (BAC).  Morgan Stanley has made about 200 hires so far, some with year-end compensation guarantees.

Zacks Investment Research
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